'Teardown' finds Toshiba taking a loss on HD DVD player

SAN FRANCISCO  Toshiba Corp. is taking a substantial loss on sales of its new HD DVD player in hopes of buying a head start in the battle for the next generation of DVD technology, according to a "teardown" analysis conducted by market research firm iSuppli Corp.

According to iSuppli's teardown analysis, bill-of-materials (BOM) costs for Toshiba's HD-A1 HD DVD total an estimated $674, far exceeding the unit's $499 U.S. retail price. The estimated BOM figure excludes costs for manufacturing, testing, cables, remote control and packagingcosts that could easily push the total cost of each unit to more than $700, iSuppli (El Segundo, Calif.) said.

iSuppli's analysis suggests that Toshiba is subsidizing the HD-A1 in an attempt to gain early market share over players that use the rival Blu-ray high-definition DVD standard, the firm said. Initial Blu-ray players, which are slated to cost $999 or more, are scheduled for launch by Samsung Electronics Co. Ltd., Sony Corp. and others this summer.

iSuppli's analysis also revealed that, like many early models, the HD-A1 does not have an especially efficient design, the firm said.

"The Toshiba HD-A1 is basically a combination of a low-end PC and a high-end DVD player," said Andrew Rassweiler, teardown services manager and senior analyst for iSuppli, in a statement.

The HD-A1 utilizes a general-purpose microprocessor instead of more cost-effective application specific standard product (ASSP) semiconductors typically used in consumer-electronics products, iSuppli said. The HD-A1 also employs an Intel Corp. Pentium 4 as the main microprocessor, as well as Broadcom Corp.'s BCM7411 for high-definition video decoding and four ADSP-2126x SHARC programmable DSPs from Analog Devices Inc., according to iSuppli, which estimated that the total cost of these chips is $137.

The HD-A1 also uses $125 worth of memory, including a 1-gigabyte dual inline memory module (DIMM) from Hynix Semiconductor Inc., three other types of DRAM, a 256-megabyte flash memory disk from M-Systems and 32 megabytes of MirrorBit flash memory from Spansion, iSuppli said. Adding the memory chips bring the total cost of ICs used in the HD-A1 to roughly $247 per unit, according to the firm.

"It's unusual to find this level of subsidization outside of the video-game console and mobile-phone markets," said Chris Crotty, iSuppli's senior analyst covering the consumer electronics segment. "Presumably, Toshiba anticipates making back any initial HD-A1 losses with subsequent products. There is little question that Toshiba had to use a high-cost design for its first model. But there is a big question as to whether pricing its player so much less than Blu-ray is worth the financial risk."

Product reviews of the HD-A1 have been mixed, iSuppli said, and the unit lacks the full 1080-pixel resolution available in the competing Blu-ray models as well as in Toshiba's own $799 HD-XA1 version of the player.

Unable to come to an agreement
on a next-generation DVD standard last year, Toshiba and its rivals each moved ahead with their own competing technologies, creating a marketplace showdown in which consumers will ultimately decide which technology prevails. In pricing its product significantly below cost, Toshiba is apparently hoping to build a lead over its Blu-ray rivals, some of which have recently announced further product launch delays.

Next-generation equipment is one of the few remaining growth segments in an otherwise peaking DVD market, which is facing increasing competition from alternative content-delivery mechanisms, including video-on-demand, Internet downloading and even Disney's resurrected MovieBeam service, according to iSuppli.

iSuppli forecasts that factory shipments of all next generation DVD equipmentboth HD-DVD and Blu-raywill reach 65 million units in 2010, up from 1.6 million units in 2006. But unlike other industry experts, iSuppli's Crotty doesn't foresee a clear winner in the battle between HD-DVD and Blu-ray.

"This is not a repeat of VHS vs. Beta," Crotty said. "The market dynamics are very different. The most likely outcome is stalemate, with the savvy manufacturers introducing dual-format players as early as the 2006 holiday season."